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NADA insight: recognising and tackling fraud in your dealership

Adam Lawyer and Jonathan Wilke

‘Fraud will happen in your business,’ Jonathan Wilke (right) and Adam Lawyer (left), from accounting firm DHG, warned at the recent NADA convention.

Fraud has a massive impact on your dealership at a number of different levels being:

• Reputation

• Trust

• Financial impacts

• Operational impacts

• Relationships with the manufacturer.

On average it takes 18 months to detect the fraud and 87% of fraudsters have never been charged or convicted, whilst 58% of fraud cases have no recovery at all.

However, frauds are most likely to be detected by tip offs by employees.

From research carried out it is noted that prosecutions go up in the bad times and reduce in the good times as dealers are more likely to write-off the debt and not pursue it further.

Therefore, it is important that dealers have a well-documented and known whistle-blowing policy or an anonymous hot line that employees can call.

Perpetrator profile

• Gross margins higher or lower than average

• Income per finance agreement higher than average

• Behavioural red flags:

-- Living beyond means

-- Financial difficulties

-- Unusually close relationship with vendor

-- Unwilling to share duties or take holidays

-- Wheeler dealer attitude.

Fraud triangle

Two out of three of these triangles will always be there in any fraud.

All dealers should assess their susceptibility to fraud and consider:

• Your control environment – all your policies and procedures

• Tone set at top by management

• Personnel

• History

• Key management presence

• Facility layout.

You should perform a risk assessment to consider your susceptibility

to fraud, consider the quality of the deal files, consider your hiring

processes, review your financial controls and pay plans.

Key learning points

• Fraud is happening in your dealerships

• Identify your high risk areas

• Develop an action plan

• Implement policies and controls

• Inspect what you expect.

> BDO attended the latest National Automobile Dealers' Association in the US and brought back insight on a number of topics, including the above.

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